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The Housing Market in 2013 and What to Expect Next Year

Throughout the year, the US housing market has been making a strong recovery, with increases in house values, demand for homes and the building of new properties. Data collected for 2013 has now revealed the best and the worst of this year’s housing market, as well as helping to inform predictions for the new year. Buyers, sellers and homeowners should be optimistic, since current trends suggest that recovery will continue and start to stabilize over the course of 2014.

The Zillow Market Health Index

A new Zillow housing gauge called the Market Health Index has been developed to test the relative health of regional housing markets, combining measures such as home value movements, the amount of time homes remain on the market and the financial situation of homeowners in order to produce a clear and comprehensive national overview.

Findings based on this test revealed that California is doing exceptionally well, with the state claiming the top four “healthiest” housing markets in San Jose, San Francisco, Los Angeles and San Diego. These were followed by Denver (CO), Boston (MA), Pittsburgh (PA), Portland (OR), New York and Sacramento (CA). Nevertheless, this shouldn’t necessarily be used as an indicator of what to expect over the coming year, since booming areas could quickly take a turn for the worse, with swift appreciation potentially leading to longer-term affordability problems. Zillow also observes that, in certain areas, rapid rises in home values and sales speeds are due to “constrained inventory”, that is, a lack of homes available for sale, something which may change very soon as more new homes are built.

New Housing

The building of new U.S. homes has now risen to the highest level in five years, according to data collected by the Commerce Department. Towards the end of this year, growing demand for housing led to a 22.7% increase in housing starts.

This is a change that looks set to continue into next year, since permits granted for future building projects have also reached a new high. Bloomberg Businessweek puts the new surge in home-building down to an improving job market, and predicts that it will help to further boost economic growth.

Potential Problems for Buyers

For those planning to take advantage of the housing market recovery with new purchases next year, having a property professionally inspected is advisable, as various kinds of damage and danger can be lurking in both new and old properties. The dangers of lead and asbestos in older buildings are now common knowledge, but additional, less obvious risk factors have more recently been identified. In some suburban areas, radon exposure can potentially lead to long-term health problems. Naturally produced by underground rock decay, radon is a colorless, odorless gas more likely to be found in homes resting directly on soil. In newer homes, the use of Chinese drywall has caused trouble, particularly in hot, humid regions along the Gulf and southern Atlantic coasts. Having been used for years without mishap, drywall today forms the basis of walls and ceilings in most new homes. However, reports have been made over the last few years of “off-gassing” in houses made with defective, imported materials. Off-gassing refers to the production of hydrogen sulfate gas by bacteria feeding on the gypsum within the walls. Not only does this generate an unpleasant “rotten eggs” odor but, when combined with high levels of water vapor in the air, it creates sulfuric acid, which can damage household metals and potentially even human tissue. The most commonly reported issues resulting from off-gassing are failures in appliances such as air conditioning units, microwave ovens and refrigerators, but its effects on exposed copper wiring and plumbing could lead to serious problems such as smoke alarm failures or natural gas pipe leakage.

Appreciation and Predictions for 2014

According to the International Business Times, US house prices are expected to be up 11% at the end of 2013. Nevertheless, such dramatic appreciation, the result of low supply and high levels of investment buying, cannot ultimately be sustainable in the long term, and fluctuations resulting from decreased affordability and a growing supply of homes for sale should be anticipated very soon. Following this, appreciation is expected to gradually even out and slow down over the course of next year. An average rise in home values of just 4% is predicted for 2014.

While mortgage rates are expected to end 2014 at 5%, a higher rate than last year’s, according to Capital Economics’ Paul Diggle, “a rise in mortgage rates to 5 percent or so is unlikely to do lasting damage to housing market activity.”

Data collected by the National Realtors’ Association shows that mortgage rates in 2013 are up from last year, and that their most recently collected affordability figure of 156 “would mark the lowest affordability in 5 years” if affordability remains at this level. Despite this, the figure would still render this year’s buying conditions the fifth most favorable in 40 years, and when added to the prediction that mortgage credit conditions are likely to relax somewhat over the next few years, this suggests that market conditions for buyers are essentially good.

By combining data on population growth, local economic backdrops and housing supply and demand, both Zillow and Capital Economics have offered predictions for next year’s healthiest regions for housing. Capital Economics argues the case for North Dakota, South Dakota and Oklahoma, while predicting that the least favorable market conditions will be found in North Carolina and Delaware. Zillow’s “Hottest Housing Markets” list, meanwhile, picks out individual cities, suggesting that Salt Lake City, Seattle, Austin (TX), San Jose (CA), Miami, Raleigh (NC), Jacksonville (FL), San Diego, Portland (OR) and Boston are all likely to do well in 2014.

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